Transcript Document 7559845

Non Profit Distributing
Model (NPD) Seminar
14 February 2008
Financial Partnerships Unit
Scottish Futures Trust
Sandy Rosie
Director, Financial Partnerships Unit
Today’s SFT menu - - • Background to SFT
• Progress
• Forward look
Infrastructure background
• Scottish Government Economic Strategy
published – investment focus on transport
• Scottish SR07 – tight settlement, but
growth in infrastructure investment
• Backlog of assets in poor condition
• concerns about costs of ‘standard PFI’, but
good to have additional private investment
Capital Expenditure Scotland (£bn's)
4
3
2
1
0
2007/08
2008/09
2009/10
2010/11
SFT commitment
“Over the first term of an SNP Government
we will introduce a not-for-profit Scottish
Futures Trust, which will provide lower
cost borrowing opportunities.
We expect the SFT to emerge as a more
attractive source of funding for both
national and local projects”
SFT main objectives
• Additional investment
• Cheaper costs than PFI
• Non-profit distributing
Other SFT objectives
• To hold assets
• Contributions from individuals
• Tax allowances
• Oil revenues
SFT Functionality ?
Funding
Guidance &
Advice
Delivery/
Assets
SFT main objectives
• Additional investment
• Cheaper costs than PFI
• Non-profit distributing
Additional investment
• Public/private placement
• International Financial Reporting
Standards/ Office of National Statistics
rules
• increasing efficiency in project delivery, eg
aggregation, strategic planning
Current position of delivery bodies
PPP project companies
Registered Social Landlords
Universities and FE Colleges
Network Rail
Joint Venture Co
to all public bopdies
OFF
BALANCE
SHEET
£100 m pa
Scottish Water Solutions
£50 m pa
hub Scotland
Subsiduary delivery cos
Urban Regeneration Cos
TfL
TfL
ON
BALANCE
SHEET
Private sector
Public sector
£170 m pa
Scottish Funding Council (1)
£430 m pa
SE Transport, Transport
Scotland (2)
£80 m pa
Scottish Enterprise (1)
£200 m pa
Scottish Water (1)
£620 m pa
Health Boards (12)
£1170 m pa
£480 m pa
Local authority (32)
Communities Scotland (1)
£140 m pa
Justice agencies (5)
(SPS, SCS, CO/PFS
Police, Fire)
Scottish Transport partnerships (6)
12
SFT main objectives
• Additional investment
• Cheaper costs than PFI
• Non-profit distributing
Comparative (£) Interest Rates*
6.5%
Bank Loan 6.1%
6.0%
PFI / PPP
Projects
 6% #
Wrapped
Bond 5.8%
EIB 5.6%
5.5%
Welsh
Water
2028
5.5%
AAA Bond 5.5%
Interbank
Swap Rate 5.4%
5.0%
4.5%
PWLB 5.0%
Gilts 4.8%
* Reference 20 year term: excludes other costs of borrowing and VfM impact of loan terms and conditions
# Non-EIB funds
TfL
2035
5%
SFT main objectives
• Additional investment
• Cheaper costs than PFI
• Non-profit distributing
NPD Structure
Public Authority
Charity
Community stakeholders
SPV - NPD
Sub debt - lenders c. 10%
Senior debt lenders c. 90%
Facilities Management Co
Lead Construction Co
FM sub-contracts
Design sub-contracts
Trade sub-contracts
Adviser sub-contracts
Capital funding Construction / FM Co.s
Market investors
Banks
Progress
• SFT Steering Group
• Delivery Team (PUK + PWC +FPU + other
SG)
• Market and public input through
consultation – ends 14 March
• Compile outline business case
Forward Look
• Cabinet decision on SFT – Spring
• Infrastructure Investment Conference –
May
• Establish SFT - ?
Financial Partnerships Unit
[email protected]
0131 244 7497
Introduction to NPD
14 February 2008
Mikko AJ Ramstedt
Senior Project Adviser
Financial Partnerships Unit
Introduction to NPD
•
•
•
•
•
Definition
Concept
NPD v PPP
Impact on bidders
Procurement process
What is NPD about?
• Securing Expertise
• Maximising VfM
• Stakeholder Transparency
What is NPD?
• Non-Profit Distributing organisation
• 100% debt funded
• No equity dividends → capped rate of
return for investors
• Enhanced corporate governance
Corporate Governance
• Private sector control over day to day
operations
• Shareholder Director
• Independent Director
– Instigator of refinancing
– Control where other directors conflicted
1. NPD v PPP
Common “building blocks”:
•
•
•
•
•
Project company (SPV)
Project Agreement with the Authority
Risk allocation
Construction and FM sub-contractors
Limited-recourse finance
2. NPD v PPP
NPD characteristics:
• NPD wholly debt-funded: 90% senior
debt and 10% junior debt
• Surplus cash flow available for public
benefit
• NPD Project Company controlled by
junior lenders
• Greater transparency through
Independent and Stakeholder Directors
3. NPD v PPP
Refinancing
• Both senior & junior debt can be
refinanced
• 50:50 sharing between junior lenders
and Authority
• Independent Director instigates
refinancing
• Other surpluses flow through to charity
Shareholder A
Equity
NPD consortium structure
• No change at sub-contractor level
• No change for senior lenders
• Project Co owned and controlled by junior
debt providers
– Conflict of interest
1. Procurement Process
•
•
•
No major change… but not just about
making a few tweaks in the PA….
Explanation of NPD to bidders needed at
all stages of the procurement, including
pre-OJEU
Full set of documents needed for ITPD
2. Procurement Process
Two likely models of junior debt:
•
Subordinated debt = “Equity-like” structure
–
No TDCR (i.e. cover 1:1)
–
Priced akin to equity—but return is capped, unlike equity
investment
–
Higher WACC, but no cover ratio may mean Unitary Charge is
lower
–
No surplus paid to charity in Base Case until “tail” period
•
Mezzanine debt = “Debt-like” structure
–
Total Debt Cover Ratio (e.g. 1.05x)
–
Lower WACC, but cover ratio requirement may make Unitary
Charge higher
–
Payment of surplus revenues to Charity more important
3. Procurement Process
•
Evaluating surpluses
•
Effect on risk transfer
Summary
• NPD – PPP without dividend bearing
equity
• Enhanced transparency through ID & SD
• Main impact on junior lenders
• Procurement process needs to be
carefully managed
• NPD elements part of bid evaluation
criteria
Mikko AJ Ramstedt
[email protected]
0131 244 4940
Developments in PPP
Guidance
Vivienne Cockburn
14 February 2007
Agenda
Part A:
 Why look at operational guidance now?
 What issues have been arising and what are the
learning points?
 What are the conclusions and what support is
there for operational PPP projects?
Part B:
 What guidance is emerging for projects entering
procurement?

Part A: Why look at operational PPP
guidance now?
Why look at operational PPP guidance now?
Experience of
Operational projects
1. Payment Mechanisms
2. Managing Operational
Projects
3. Benchmarking & Market
Testing
4. Variations
Feedback from PPP
Managers

Part A: What issues have been arising,
what are the learning points and how has
this been captured in the guidance?
1. Payment Mechanism: How has it worked to date?
1. How easy to use?
4. What have been
the learning points?
PM: Lessons
Learnt
2. Has it incentivised
the contractor?
3.How have the unitary charge
change mechanisms worked in practice?
How should we manage the Payment Mechanism?
Active Management
• shadow running
• update prior to services availability
• procedures
• enforcing deductions?
Understand impact of changes
•Update for changes
Lessons
Learnt
Commissioning/Procedures
Grace Periods
• Availability/Health & Safety/SPV Management – no
• Performance Deductions - ?
•
•
Joint training
User guides
2. The Quagmire of Contract Management:
Experience to date
Project documents:
•Different ‘language’
•Different people
•How sections interact
Tricky Issues:
• Disputes
• Variations
• Benchmarking
• Refinancing
User issues:
• Service performance
• Malicious damage
• Flexibility
2:Spectrum of Approaches
BY THE
CONTRACT
LAISSEZ
FAIRE
• significant
monitoring
•Contract first
point of contact
•Enforce all
deductions
• reliance upon
contractor
monitoring
•Limited
verification
•Not always
enforce all
deductions
•sufficient monitoring to
confidence in reporting
•Enforce deductions unless
specific reasons
•Active sign off &
monitoring by Project Board
Generic PPP Contract Management Documentation
Operational
Governance and Contract Management
Contract Administration Manual
User Guide to the Project Agreement
• processes and procedures to mange the operation of the contract
• allocation of roles and responsibilities within Council and between
Council and PPP Contractor
Guide to the Payment Mechanism
User Guides
Governance Structure
Communications Strategy
Transitional Plan
Staff Transfer Management Procedures
Contingency Plan
Post Contract Evaluation Procedures
Risk Register
3. Benchmarking & Market Testing: Experience To
Date
• Comparable Projects
• Negotiations distracted
to other issues
• Demonstrating VfM
• Know market
• Aware conflict issues
•Clear governance structure
• Allow time and resources
4. Variations
Difficult to implement
Number of parties
Funding
Payment mechanism
Impact on procurement law
Developments: SOPC 4, Scottish Guidance re: process

Part B: What guidance is emerging for
projects entering procurement?
What guidance is emerging for projects in development?
Emerging Policy &
Legislation
1. VfM Update
2. Payment Mechanisms
3. Competitive Dialogue?
4. Sector specific eg SCIM
Feedback from
Existing projects
Value for Money Analysis
Delivering an Approvable Scheme
Retained Risk
Financial Input
Payment &
Performance
Regimes
Value
Risks
Develop
CPAM
Workshops
to Apportion
Risk
Technical Input
CPAM
PPP
PPP Contract
NPD: Financial
NPD: Governance
NPD: VfM Developments
Financial Analysis
 Move towards NPD
vs CPAM
 Not use Treasury
HMT model
 Use a shadow bid
model inc donation
assumptions
NPD: VfM Developments
VfM Assessment
 Timing of donations
 Recognise deliverability risk
 Apply
a risk factor to forecast
donations
 Discount at [7%] real


Risk transfer impact
Qualitative benefits
Payment Mechanism: Procurement Guidance
1. Roles & Responsibilities
in development
2. Level of development
3. Indexation
4. Linkages to termination and
performance
Payment Mechanism
The Heart of your contract

Conclusions: Where are we now?
Conclusions
Operational Guidance:
 Payment
Mechanism and Benchmarking/Market
Testing Guidance – published
 Managing a PPP Contract – due shortly
 Variations – in development
NPD VfM Guidance
 In development
Contact Details
Vivienne Cockburn
Financial Partnerships Unit, Scottish Government




[email protected]
[email protected]
Mobile: 07766 006 028
Tel: 0131 244 7496
Guidance on FPU website:
www.scotland.gov.uk/Topics/Government/Finance/18232/12271
Close
Non Profit Distributing Model (NPD) Seminar
14 February 2008